The Difference Between Secured Loan and Unsecured Loan

Whenever you borrow money from a friend, financial institution, bank or a moneylender in Singapore, the amount that you will get is considered as a loan. Every person who obtains a loan needs to pay for interest, which is the fee that will be collected by every creditor for the forbearance of money. Once you obtain a loan, it is important that you really pay it on time in order to avoid penalties or surcharges. Loans can be secured or unsecured, depending on the agreement and needs of the parties involved.

What makes them different from one another?

In this article, we will discuss the major differences between secured loan and unsecured loan. As the name imply, a secured loan refers to a loan that is obtained upon the presentation of a security. This means that there is a collateral surrendered by the debtor to the creditor in order to get a loan. On the other hand, an unsecured loan refers to a loan that does not require any collateral. A good example of this is a personal loan. It is something that you can apply for without presenting any valuable property in exchange for the forbearance of money.

What are secured loans?

When it comes to secured loans, the properties that are usually involved are cars, houses, and other similar assets. The creditor, which can be a natural or a juridical person, will give an assessment of the current market value of the collateral. The amount of the assessment will determine how much the creditor would be willing to lend out to the borrower. Therefore, as the value of the security increases, the amount of the loan also increases.

What are unsecured loans?

On the other hand, unsecured loans do not involve any of your property. You can simply go to the moneylender or the financial institution to submit an application for an unsecured loan. This application will not require you to present certain properties. Since there is no requirement for a collateral, then you must expect to pay higher interest rates for this kind of loan. However, it is still important that you have a good credit standing so that the borrower will approve your loan application.

Which should you choose?

Now that you already have an idea about the two types of loan, the next thing to do is to determine which among the two to choose. Surprisingly, most people choose to obtain secured loans even if it means that they have to prepare for collaterals. Well, first of all, secured loans are more likely to have lower interest rates. Since the borrower needs to send a property for collateral, then it means that there is a lower risk on the part of the creditor.

Getting secured loans is also ideal especially if you want to obtain a high amount of borrowing. Take note that when it comes to secured loans, you need to deliver, whether actual or constructively, the property that will serve as a collateral.

If you have any questions regarding applying for a personal loan in Singapore, you can always contact JD Credit and we will be more than willing to educate you on the range of loan products available in the market.